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A Quick Thought on the Balance of Trade

When a foreign nation buys resources and goods from the domestic nation and takes them out of the country (exports), it’s considered “good” by mercantilists.

When a foreign nation sells goods and resources to the domestic nation (imports), it’s considered “bad” by mercantilists.

When the number of resources coming in is higher than going out, and some resources are bought by the foreign nation and kept in the domestic country (trade deficit), it’s considered terrible by mercantilists.

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4 thoughts on “A Quick Thought on the Balance of Trade”

One of the other claims by mercantilists is that it fosters nascent domestic industries (e.g. we need steel tariffs to develop our domestic steel industry). This completely sidesteps the opportunity cost of how the resources consumed by more expensive steel products could have been used.

“The purposes of the mercantilists were not the same as those of modern economists. Mercantilists were concerned with increasing the power of their own respective nations relative to that of other nations. Their goal was not the allocation of scarce resources in a way that would maximize the standard of living of the people at large. Their goal was gaining or maintaining a national competitive advantage in aggregate wealth and power over other nations, so as to be able to prevail in war, if war occurred, or to deter potential enemies by one’s obvious wealth that could be turned to military purposes. A hoard of gold was ideal for their purposes.”

“Mercantilists were by no means focused on the average standard of living of the population as a whole. Thus the repression of wages by imposing government control was considered by them to be a way of lowering the costs of exports, creating a surplus of exports over imports, which would bring in gold. The promotion of imperialism and even slavery was acceptable to some mercantilists for the same reason. The “nation” to them did not mean a country’s whole population. Thus Sir James Steuart could write in 1767 of “a whole nation fed and provided for gratuitously” by means of slavery. Although slaves were obviously part of the population, they were not considered to be part of the nation.”